Portage Health CEO Bogan discusses joint venture

August 14, 2013

HANCOCK - The process to create a new entity at Portage Health has cleared another hurdle with the signing Aug. 6 of a definitive agreement between the hospital and Tennesee-based LifePoint Hospitals.

In March, representatives of Portage Health and LifePoint, which is involved with 57 hospital systems in 20 states, announced the start of discussions about creating a partnership between the two systems.

Jim Bogan, president and CEO of Portage Health, said Tuesday after the two organizations signed the definitive agreement, it was sent to the office of Michigan Attorney General Bill Schuette for final approval. There is a tentative date of Nov. 30 to close on the transaction.

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Kurt Hauglie/Daily Mining GazetteOn Aug. 6, Portage Health signed a definitive agreement for a joint venture for a for-profit company with Tennessee-based LifePoint Hospitals. The agreement has to be approved by the office of Michigan Attorney General Bill Schuette, which is expected by Nov. 30.

"It's a fair amount of time for us to catch up on whatever we're supposed to be doing," he said.

Since the March announcement of discussions about a partnership, Bogan said the two sides have been in discussions about what that arrangement would look like.

It was decided about two years ago by the Portage Health board of directors to seek out a partner, which Bogan said could help with capital improvements and provide financial support needed for the changes, which would be brought about by the implementation of the federal Affordable Care Act. Also, the hospital was financially sound at the time, and could negotiate from a position of strength.

Bogan said there is still some documentation that needs to be completed for the agreement, including current assets and liabilities.

"We have to share those between the buyer and the seller," he said.

Bogan said if the agreement is approved by the attorney general's office, LifePoint will have 80 percent ownership of the new entity, and Portage Health will have 20 percent ownership.

The agreement includes $60 million in capital investments from LifePoint and Portage Health over the next 10 years. LifePoint will provide $48 million, and Portage Health will provide $12 million.

There will also be another $40 million investment into a new, locally-governed charitable foundation, which Bogan said will replace the current Portage Health Foundation. Its board will have seven to nine members.

The Foundation will hold the hospital's 20 percent interest in the joint venture, it will be involved with assuring compliance with the agreement, and it will accept contributions and distribution of earnings to support the community needs.

Bogan said the arrangement between Portage Health and LifePoint is different from other situations where one hospital system buys another because it's a joint venture transaction, not an outright purchase, which meant more time was taken for the due diligence by both parties.

"The process leading up to the definitive agreement took a little longer than normal," he said.

Part of that process was to ensure there would still be a degree of local control of the health care system, which will be supported by the make-up of the governing board, consisting of four members from Portage Health and four members from LifePoint, Bogan said.

"The governance will be 50/50 (percent), the ownership will be 80/20," he said. "As long as we exist this way, we'll always have people from our community who will be able to serve."

That type of partnership arrangement is not unique, Bogan said.

There is a list of 30 items, such as operating budget and capital budget, which have to be approved by the governing board, Bogan said.

If the transaction is approved, Bogan said a 10-member board of trustees of Portage Health will have an advisory role for the governing body, which he expects will meet quarterly.

Bogan said if the joint venture is approved, there will be no lay-offs of current Portage Health employees.

"On the closing date, every employee that's working at Portage will continue working under the new joint venture," he said. "Pay and employee benefits will stay as they are today."

There are currently about 700 full-time-equivalent employees in the Portage Health system.

There will be no employee stock options in the new company, Bogan said, but there will continue to be a 401k retirement plan for employees.

Kevin Store, Portage Health director of marketing and communications, said although LifePoint doesn't pay dividends on its stock, the money from stock sales is reinvested into the hospital system.

"I think that's an important piece," he said.

Bogan said if the joint venture is approved, because the new entity will be a for-profit company, that means it will be paying taxes to Hancock, Houghton County and Michigan for public education. Exactly how much that will be won't be known until appraisals on the value of Portage Health assets is completed.

"We're committed to paying our fair share of taxes," he said.

Bogan said there will be a public hearing on the joint venture on Sept. 23 in the Michigan Technological University Lakeshore Center.